The Marketing Alliance Announces Financial Results for its Fiscal 2019 Fourth Quarter and Year Ended March 31, 2019

ST. LOUIS--()--The Marketing Alliance, Inc. (OTC: MAAL) (“TMA” or the “Company”), today announced financial results for its fiscal 2019 fourth quarter and year ended March 31, 2019.

FY 2019 Fourth Quarter Financial Highlights (all comparisons to the prior year period)

  • Revenues increased 17% to $10,576,939, largely due to higher commission and fee revenue in the insurance business
  • Operating income was $552,826, as compared to operating income of $670,120 in the prior year quarter, largely due to goodwill and long-lived asset impairment charge. Without these charges, operating income would have been $969,234 in the quarter
  • Operating EBITDA (excluding investment portfolio income and impairment charges) was $1,142,249, compared to $871,138 in the prior year quarter
  • Non-operating investment gain (loss), net, of $815,444 compared to a gain of $144,096 in the prior year quarter primarily related to an increase in the market value of the equity securities the Company held at March 31, 2019
  • Net income was $950,841, or $0.12 per share, as compared to net income of $611,672, or $0.08 per share in the prior year period, driven in this period by an increase in revenues and investment gain
  • Non-cash impairment charges of $416,408 (goodwill impairment of $349,300 and long-lived asset impairment charges of $67,108) associated with the sale of a family entertainment location subsequent to the end of the quarter, and reassessment of the goodwill value of two other locations

FY 2019 Annual Financial Highlights (all comparisons to the prior year)

  • Revenues increased 11.0% to $35,181,918
  • Operating income was $540,086 compared to $917,877, largely due to an impairment charge. Without the impairment charge, operating income would have been $956,494
  • Operating EBITDA (excluding investment portfolio income and impairment charges) was $1,682,487 compared to $1,691,704
  • Net income was $269,751, or $0.03 per share, as compared to net income of $1,450,272, or $0.18 per share
  • The Company announced that it intended to change the timing of its annual cash dividend to shareholders from what had historically been January to on or about April, beginning in 2019, to better align the Company’s dividend with its fiscal year ending March 31st
  • The Company paid a $0.07 per share cash dividend to shareholders on or about January 31, 2019, and another $0.19 per share cash dividend for shareholders of record on May 30, 2019. The Company intended these two dividends to represent what had historically been a single annual cash dividend to shareholders. If added together, the sum of these cash dividends would be $0.26, which is a 13% increase over the prior year cash dividend of $0.23 per share

Management Comments

Timothy M. Klusas, TMA’s Chief Executive Officer, commented, “We were pleased to grow revenues by a double-digit percentage in both the quarter and year. For the year we saw revenue growth in excess of 14% in the insurance business. We continued to invest in our business in numerous ways including our call center, to drive digital life insurance applications. As we have said in previous years, the expenses required to grow and reinvest have historically been high in higher-growth years like the one just completed. We also did not attain some of the beneficial compensation reconciliations from carriers that we have enjoyed in previous years, which resulted in our payments to distributors (expenses) increasing by almost the same amount as revenues. Despite this business mix, the growth of many agencies was encouraging, particularly through digital applications that reduce cost throughout the supply chain. Our insurance agencies once again continued to work with their agents to increase adoption, and we continued to see more carriers express their desire to increase their presence on our platform.”

Mr. Klusas also commented, “Construction revenues increased this year as we continued our progress in seeking roadway projects to offset the weakness in agricultural prices, such as corn and soybeans, which had historically driven demand for our traditional field drainage services. This year we reduced equipment by divesting excess equipment not being used in our roadway projects. Our margin was affected adversely this year by an end-of-job reconciliation of a project that started last year and ended in this year, which resulted in less revenue than expected this year as we finished the project.”

Mr. Klusas concluded, “Finally, our family entertainment business was challenged this year for various reasons from unplanned closures due to inclement winter weather when school was out of session to hurricane closures for consecutive days in multiple stores. In addition, we continued to work to implement refined pricing and subsidize additional associate training initiatives throughout all of our locations to find the right balance between expense savings and providing an outstanding value for our customers. All in all, our results showed some progress, but we were not able to grow revenues versus the prior year. Subsequent to the end of the year, we divested one of our locations in an asset sale as the associated lease was coming to expiration. The asset sale resulted in goodwill and asset impairment charges recorded in the fourth fiscal quarter. We also evaluated the goodwill value of two other locations and proactively reduced the carrying value of the goodwill associated with those facilities, which resulted in the impairment charges described above. We will continue to monitor our progress in this business and seek the appropriate balance of revenue growth and expense control.”

Fiscal 2019 Fourth Quarter Financial Review

  • Total revenues for the three-month period ended March 31, 2019, were $10,576,939 as compared to $9,011,397 in the prior year quarter. This was due mostly to increases in insurance commission which offset a decrease in family entertainment revenue relative to the prior year period.
  • Net operating revenue (gross profit) for the quarter was $3,000,621 compared to net operating revenue of $2,908,347 in the prior-year fiscal period.
  • Operating expenses increased to $2,447,795, or 23.1% of total revenues for the fiscal 2019 fourth quarter, as compared to $2,238,227, or 24.8% of total revenues for the same period of the prior year due to impairment charges of $416,408. Without the impairment charges, operating expenses would have dropped to $2,031,387 or 19.2% of total revenues, in the quarter. Operating expenses decreased as a percentage of total revenues, mainly due to lower consulting and travel costs in the quarter compared to the prior year quarter.
  • The Company reported an operating income of $552,826, compared to operating income of $670,120 reported in the prior-year period. This decrease in operating income (decrease in operating profit) was the result of the factors mentioned above, where increases in revenues were offset by an impairment charge. Without these charges, operating income would have been $969,234 in the quarter.
  • Operating EBITDA (excluding investment portfolio income and impairment charges) for the quarter was $1,142,249, compared to $871,138 in the prior year period. A note reconciling operating EBITDA to operating income can be found at the end of this release.
  • Investment gain (loss), net (from non-operating investment portfolio) for the fourth fiscal quarter ended March 31, 2019, was $815,444, as compared to $144,096 for the same quarter of the previous fiscal year.
  • Net income (loss) for the fiscal 2019 third quarter was $950,841, or $0.12 per share, as compared to net income of $611,672, or $0.08 per share, in the prior year period. The increase in net income was primarily due to the increase in investments seen in Investment gain (loss), net, during the quarter.

Fiscal 2019 Annual Financial Review

  • Total revenues for the twelve months ended March 31, 2019 were $35,181,918, compared to $31,684,329 for the prior-year period. An increase in insurance distribution revenue and construction revenue helped to offset a decrease in revenue in the family entertainment business.
  • Net operating revenue (gross profit) was $9,747,661, which compares to net operating revenue of $9,774,020 in the prior-year fiscal period. The increase in revenue mentioned above was largely offset by a comparable increase in costs of revenues.
  • Operating expenses increased in the most recent fiscal year compared to last year due in part to increases in compensation and professional fees and were offset by decreases in technology and office expenses. In addition, the Company reported goodwill and long-lived asset impairment charge of $416,408 in the most recent fiscal year. As a percentage of revenues, operating expenses decreased to 26.2% from 28.0% in the prior year, or 25.0% excluding the impairment charges.
  • The Company reported operating income of $540,086 (including impairment charges, $956,494 without impairment charges) for the year ended March 31, 2019, compared to an operating income of $917,877 for the prior year due to the factors discussed above.
  • Capital expenditures for the year were roughly the same as the previous fiscal year, approximately $250,000 compared to $240,000 last year. Approximately half of the capital expenditures were related to technology in new servers and upgraded equipment. The balance of capital expenditures was split between equipment in the construction business, computers and technology related to the Company’s call center for life insurance applications, video games in the children’s entertainment business and leasehold improvements.
  • Operating EBITDA (excluding investment revenue and impairment charges) for the year ended March 31, 2019 was $1,682,487, compared to $1,691,704 in the prior year. A note reconciling Operating EBITDA to Operating Income can be found at the end of this release.
  • Net income for the year ended March 31, 2019, was $269,751, or $0.03 per share, compared to a net income of $1,450,272, or $0.18 per share, for the prior year. The year over year decrease was the result of lower operating profit, lower investment gain (loss). These were partially offset by a gain on sale of equipment in the construction business during the current year.

Balance Sheet Information

  • TMA’s balance sheet at March 31, 2019 reflected cash and cash equivalents of approximately $3.6 million, working capital of $9.4 million, and shareholders’ equity of $10.1 million; compared to cash and cash equivalents of approximately $3.4 million, working capital of $9.7 million, and shareholders’ equity of $10.4 million, at March 31, 2018.

About The Marketing Alliance, Inc.

Headquartered in St. Louis, MO, TMA operates three businesses. TMA provides support to independent insurance brokerage agencies, with a goal of providing members value-added services on a more efficient basis than they can achieve individually. The Company also owns an earth moving and excavating (construction) business and eight children’s play and party facilities. Investor information can be accessed through the shareholder section of TMA’s website at: http://www.themarketingalliance.com/shareholder-information.

TMA’s common stock is quoted on the OTC Markets (http://www.otcmarkets.com) under the symbol “MAAL”.

Forward Looking Statement

Investors are cautioned that forward-looking statements involve risks and uncertainties that may affect TMA's business and prospects. Examples of forward-looking statements include, among others, statements we make regarding our expectations for our performance in future periods and the production of favorable returns to shareholders, our ability to obtain industry acceptance and competitive advantages of a multi-carrier digital platform for life insurance applications, our expectations with respect to the distribution of new life insurance products, the effects of ongoing uncertainty regarding the Department of Labor’s Fiduciary Rule in our annuity business, our ability to continue to diversify our earth moving and excavating business and our ability to increase revenue and reduce costs from our family entertainment business. Any forward-looking statements contained in this press release represent our estimates, expectations or intentions only as of the date hereof, or as of such earlier dates as are indicated, and should not be relied upon as representing our views as of any subsequent date. These statements involve a number of risks and uncertainties, including, but not limited to, expectations of the economic environment; material adverse changes in economic conditions in the markets we serve and in the general economy; future regulatory actions and conditions in the states in which we conduct our business; our ability to work with carriers on marketing, distribution and product development; pricing and other payment decisions and policies of the carriers in our insurance distribution business, changes in the public securities markets that affect the value of our investment portfolio, weather and environmental conditions in the areas served by our earth moving and excavation business, the integration of our operations with those of businesses or assets we have acquired or may acquire in the future and the failure to realize the expected benefits of such acquisition and integration. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three and Twelve Months Ended March 31, 2019 and 2018

Unaudited

 
Three Months Ended Twelve Months Ended
March 31, March 31,

2019

 

2018

 

2019

 

2018

 
Commission and fee revenue

$ 9,036,257

$ 7,306,591

$ 29,212,096

$ 25,504,953

Family entertainment revenue

1,239,012

1,413,295

4,453,741

4,809,365

Construction revenue

28,516

4,311

1,058,206

901,270

Other operating income

273,154

287,200

457,875

468,741

Total revenues

10,576,939

9,011,397

35,181,918

31,684,329

 
Distributor related expenses:
Distributor bonuses and commissions

6,877,902

5,290,777

21,745,680

18,337,855

Business processing and distributor costs

323,898

342,663

1,544,819

1,551,705

Depreciation

700

2,064

7,000

8,200

7,202,500

5,635,504

23,297,499

19,897,760

Costs of construction:
Direct and indirect costs of construction

28,019

42,637

791,364

618,607

Depreciation

19,430

27,749

68,930

56,035

47,449

70,386

860,294

674,642

 
Family entertainment costs of sales

326,369

397,160

1,276,464

1,337,907

 
Total costs of revenues

7,576,318

6,103,050

25,434,257

21,910,309

 
Net operating revenue

3,000,621

2,908,347

9,747,661

9,774,020

 
 
Operating expenses

2,447,795

2,238,227

9,207,575

8,856,143

 
Operating income (loss)

552,826

670,120

540,086

917,877

 
Other income (expense):
Investment gain (loss), net

815,444

144,096

(88,937)

839,471

Interest expense

(104,268)

(78,260)

(371,050)

(282,773)

Interest rate swap, fair value adjustment income (loss)

(16,136)

26,310

(31,444)

47,998

Swap settlement income (expense)

5,689

(295)

14,658

(13,207)

Gain (loss) on disposal of property and equipment

-

-

256,638

(6,924)

 
Income (loss) before provision for income taxes

1,253,555

761,971

319,951

1,502,442

 
Income tax expense (benefit)

302,714

150,299

50,200

52,170

 
Net income (loss)

$ 950,841

$ 611,672

$ 269,751

$ 1,450,272

 
 
 
Average shares outstanding

8,032,266

8,032,266

8,032,266

8,032,266

 
Operating income per Share

$ 0.07

$ 0.08

$ 0.07

$ 0.11

Net Income per Share

$ 0.12

$ 0.08

$ 0.03

$ 0.18

 
 

CONSOLIDATED BALANCE SHEETS

As of March 31, 2019 and March 31, 2018

 

 
ASSETS
 
Cash and cash equivalents

$ 3,636,824

$ 3,431,155

Investments

8,566,183

8,627,202

Receivables

11,086,215

8,917,928

Other

703,442

889,233

Total Current Assets

23,992,664

21,865,518

 
Property and Equipment, net

1,765,521

2,234,797

Intangible Assets, net

125,137

195,597

Other

1,465,895

1,845,638

Total Non Current Assets

3,356,553

4,276,032

 
Total Assets

$ 27,349,217

$ 26,141,550

 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current Liabilities

14,570,833

12,154,086

 
Long Term Liabilities

2,676,682

3,593,254

 
Total Liabilities

17,247,515

15,747,340

 
Shareholders' Equity

10,101,702

10,394,210

 
Total Liabilities and Shareholders' Equity

$ 27,349,217

$ 26,141,550

Note – Operating EBITDA (excluding investment portfolio income)

Fiscal 2019 fourth quarter operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2019 fourth quarter operating income of $552,826 and depreciation and amortization expense of $173,015 and impairment charge of $416,408 for a total of $1,142,249.

Fiscal 2018 fourth quarter operating EBITDA (excluding investment portfolio income) was determined by adding Fiscal 2018 third quarter operating income of $670,120 and depreciation and amortization expense of $201,018 for a total of $871,138.

Fiscal 2019 year-end operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2019 year-end operating income of $540,086 and depreciation and amortization expense of $725,993 and impairment charge of $416,408 for a total of $1,682,487.

Fiscal 2018 year-end operating EBITDA (excluding investment portfolio income) was determined by adding fiscal 2019 year-end operating income of $917,877 and depreciation and amortization expense of $773,827 for a total of $1,691,704.

The Company elects not to include investment portfolio income because the Company believes it is non-operating in nature.

The Company uses Operating EBITDA as a measure of operating performance. However, Operating EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing its operating performance, investors should use Operating EBITDA in addition to, and not as an alternative for, income as determined in accordance with GAAP. Because not all companies use identical calculations, its presentation of Operating EBITDA may not be comparable to similarly titled measures of other companies and is therefore limited as a comparative measure. Furthermore, as an analytical tool, Operating EBITDA has additional limitations, including that (a) it is not intended to be a measure of free cash flow, as it does not consider certain cash requirements such as tax payments; (b) it does not reflect changes in, or cash requirements for, its working capital needs; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Operating EBITDA does not reflect any cash requirements for such replacements, or future requirements for capital expenditures or contractual commitments. To compensate for these limitations, the Company evaluates its profitability by considering the economic effect of the excluded expense items independently as well as in connection with its analysis of cash flows from operations and through the use of other financial measures.

The Company believes Operating EBITDA is useful to an investor in evaluating its operating performance because it is widely used to measure a company’s operating performance without regard to certain non-cash or unrealized expenses (such as depreciation and amortization) and expenses that are not reflective of its core operating results over time. The Company believes Operating EBITDA presents a meaningful measure of corporate performance exclusive of its capital structure, the method by which assets were acquired and non-cash charges, and provides additional useful information to measure performance on a consistent basis, particularly with respect to changes in performance from period to period.

Contacts

Contact:
The Marketing Alliance, Inc.
Timothy M. Klusas, President
(314) 275-8713
tklusas@themarketingalliance.com
www.TheMarketingAlliance.com

The Equity Group Inc.
Adam Prior, Senior Vice President
(212) 836-9606
aprior@equityny.com

Contacts

Contact:
The Marketing Alliance, Inc.
Timothy M. Klusas, President
(314) 275-8713
tklusas@themarketingalliance.com
www.TheMarketingAlliance.com

The Equity Group Inc.
Adam Prior, Senior Vice President
(212) 836-9606
aprior@equityny.com